When can a bunker fuel be said to meetAccording to Keld Demant (KD), the Bunker Holding Group comprises 59 offices in 31 countries, employing around 750 dedicated specialists with local knowledge. They handle nearly 25 million metric tonnes of bunker fuel, generating in excess of $10 billion in revenue. IBIA’s Director, Unni Einemo, had the opportunity to engage the head of the Denmark-based global giant in a Q&A.
marine fuel industry. This has been creating confusion and distress for bunker fuel buyers and sellers for years, resulting in friction and frequent disputes.
UE: Can you tell us how your activity is evolving with regards to the balance between bunker trading physical supply operations? Is your strategy focusing on growth in one area over and above the other? And do you expect growth for your risk management services?
KD: We can look back on a 140-year long career in trading, serving shipping clients. Today, I dare say that we are the world leader within our industry – delivering the right product, the ideal financing and the best advice to our clients. Over the years, we have added several supply locations and, with the formation of Bunker One in the beginning of 2018, we now have the perfect platform for increasing our physical services. With 20 ports covering all global regions, Bunker One was very well received by the market and has rapidly developed into a respected physical supplier and consultant. We are pleased to welcome the new clients of Bunker One Physical, and we appreciate the wealth of experience contributed by our new colleagues.
Having said that, Bunker One Physical accounts for only 15% of our business, and we stay tuned to an agile business model with no asset investments. As to Global Risk Management (GRM) – the steady growth of this company means that, today, it is one of the leading providers of risk management products within the industry.
GRM was the only company qualifying for approval under MIIFID II (new European regulations as of 01.01.2018), and as a result we have seen the business growing at an even faster pace. Looking ahead, we think that GRM is very well positioned for significant growth.
UE: The demise of OW Bunker in late 2014 created opportunities for other companies, like Bunker Holding, to soak up the market share, employees and other assets left high and dry by the collapse of this global giant. But it also struck fears into the heart of the market about counterparty risk. Do you still see the legacy of OW’s bankruptcy impacting the market today?
KD: The bunker industry (like most other industries) has, admittedly, seen a few adverse cases over the years. If you analyse these cases, you can draw two conclusions: First, they all concern a physical supplier, and secondly, there is often an element of potential fraud involved
I believe that our market comprises many healthy players who comply with requirements, but I can only urge bunker buyers worldwide to show due diligence in respect of their counterparts. And this is becoming increasingly important as 2020 approaches.
UE: We are at the start of the 2nd quarter of 2019. Do you have a clear picture now of what types of products your customers want to buy to comply with the 2020 global 0.50% sulphur cap, and when ships without scrubbers will start buying compliant fuels?
KD: While no one can claim to know exactly how shipowners will manage the transition to compliant fuels, we believe that, going into 2020, the compliant-fuel portfolio may be distributed at the following ratios: 30% – 40% will transition directly to MGO and wait a few months before the VLSFO concerns are addressed or settled through the supply chain. 40% – 50% will opt for VLSFO Leaving about 10% HSFO demand remaining for vessels with scrubbers plus a few being in non-compliance As to the timing aspect, this will depend on vessel-trade routes and shipowners’ timing with respect to cleaning and – if required – modification of their bunker tanks plus, of course, bunker consumption.
Some vessels will need to begin procuring the compliant fuels as early as September/ October to be 100% prepared for compliance with the new sulphur cap taking effect on January 1, 2020. No matter the outcome, we have already seen considerable dialogue and planning for purposes of being well prepared for 2020, and we recommend all involved parties to begin sooner rather than later.
UE: Are you confident the fuels your customers want – whether that is MGO, VLSFO or HSFO for ships with scrubbers – will be readily available throughout the world in 2020?
KD: The level of confidence regarding supply availability has recently increased, especially after most oil majors and commodity traders have made announcements regarding their plans to offer VLSFO 0.5%. We therefore expect major bunkering ports around the world to have the three grades available; but, we do, however, expect to meet some supply constraints at niche ports where product availability might be limited to only two or even just one grade.
Accordingly, the maximum use of our vast knowledge of the world’s ports and product availability, combined with the preparation and planning ahead by the customers, will be critical to minimise the risk of surprises.
UE: The buying side is extremely worried about the quality of VLSFO blends, in particular with regards to stability and potential ingress of harmful blend components. What can you do to allay those fears?
KD: To help our customers navigate safely through this challenge, we (Bunker One Physical) have conducted a series of manual tests concerning VLSFO 0.5% blends, subjecting them to testing by independent laboratories. These blends constitute a fair representation of the types of blends we
will likely offer to our customers.
The preliminary test results are quite positive in terms of stability and compatibility. The results tend to be very similar to those we saw when the sulphur cap for ECA changed from 1.0% to 0.1%, which means that we may meet some challenges; however, with proper planning and collaboration between customers and suppliers, most challenges should be manageable.
UE: The other major concern for ship operators is the increased risk of various VLSFO blends being incompatible. Suppliers are not guaranteeing compatibility today and it seems unlikely they will do so going forward but is there any further information the supply side can provide about products supplied to help ship operators assess that risk?
KD: It is important to mention that, today, a considerable share of the HSFO fuels available are blended fuels. As you mention, there is no guarantee on the compatibility today, but on the other hand, we aren’t faced with many compatibility issues or claims, either. However, we can’t ignore the fact that there will be several varieties of the VLSFO 0.5% blends, and we need to help our customers deal with this challenge. In addition to the VLSFO 0.5% blends and testing already conducted, we have therefore prepared a couple of reference guides. We plan to make these available to our customers to assist them in the transition and help them identify the DNA of the VLSFO blends. This way, they will be better equipped to deal with the fuel on board the vessel.
One of the reference documents will enable our customers to categorise 0.5% fuels by listing the typical characteristics of Naphthenic vs Paraffinic vs Straight Run fuels. We believe this will be of great value to our customers and help them assess whether the new VLSFO fuels they are to receive, will be compatible with what they have been burning on board prior to the new supply of bunkers.
UE: Bunker fuel costs will inevitably rise in 2020 (unless crude oil prices crash like they did just before the 0.10% sulphur limit in ECAs took effect in 2015). This means the market will need greater access to credit than today to maintain current bunkering volumes. Is that credit going to be available?
KD: I truly believe that the lack of credit in the market will pose a much greater risk than the product availability issue.
Just image the combination of the following scenarios: several significant credit providers have left the marketprices going up 30 – 40% the buyers are under pressure
banks are more tight-fisted than ever credit insurers also have their limits.
That said, I am pleased to report that we are prepared, as we have secured a 65% increase in our bank package that is still on a non-pledge basis. We will be ready and well positioned to assist our clients.
UE: What impact do you expect IMO 2020 will have on the bunker market?
KD: We have implemented a new acronym, “KYS” (Know Your Supplier), which means that the relationship between suppliers and customers will change. It will no longer solely be a “price-related” relationship – but rather a closer cooperation around the additional value-adding services that suppliers can bring to the table, including: guidance and services around the ability to expand credit lines to match the expected increase on bunker prices guidance and information on product quality and specifications, plus technical support during the transition to the new sulphur cap.
Therefore “KYS “ capabilities will be crucial, and we consider this to be one of the most significant changes within the bunker market on the back of IMO 2020.
UE: How long do you think it will take for the industry to adapt to the 0.50% sulphur limit and any disruption caused by it to settle down?
KD: Based on similar past disruptive effects on fuel markets, we assume a period of 18 to 36 months, depending on how the anticipated challenges represented by VLSFO 0.5% blends get mitigated or addressed. Also, if the number of vessels fitted with scrubbers increases dramatically within the first 2 years, we are likely to return to a balanced and well-supplied market sooner than expected.
UE: Finally, as the head of a leading global bunker fuel and service provider, what advise do you have for IBIA?
KD: Make sure that the entire value chain understands that we are in this together. There is no room for “us and them”. We all need to understand and accept that the good old days are never to return. Embrace the new mantra of partnership – Know Your Supplier – and plan your activities accordingly.